SLOVENIA Law and Practice Contributed by: Blaž Ogorevc, Miha Štravs and Blaž Murko, Odvetniki Šelih & partnerji, o.p., d.o.o.
In relation to provision of upstream security, certain risks may arise within the borrower’s group in relation to potential personal liability of management of the group companies. Namely, the Companies Act provides for relatively strict rules regarding the obligations of the manage - ment of group companies in case of so-called harmful instructions. Such concerns are typically addressed by inserting a standard limitation lan - guage into the facility agreement or into security documents. 3.6 Formalities When a Borrower Is in Default In the event of borrower default, the lender may achieve enforcement of its security over real estate against the defaulting borrower through court proceedings. Since loan agreements are usually concluded in the form of directly enforce - able notarial deeds, the borrower in such case does not need to first initiate litigation proceed - ings, but rather can directly initiate enforcement proceedings. The law prescribes no additional steps that must be taken to give priority to the lender’s security interest over real estate over the interest of other creditors. In certain limited cases, real estate can also be sold in an out-of- court sale with a notary’s assistance. If only enforcement proceedings are necessary, official statistics show that the average time needed to successfully enforce and realise on property security is 2.9 months. Differently, if litigation proceedings also need to be initiated, the average time needed to successfully enforce and realise on property security significantly increases and is likely to exceed 12 months. In the current market, lenders have been rather lenient with debtors and tend to forbear before foreclosing. When institutional lenders foreclose, they might purchase larger real estate them -
selves or through their real estate vehicles, and then manage it or sell it themselves on the mar - ket; however, smaller tickets can be bundled into portfolios and sold on the market to specialised companies. 3.7 Subordinating Existing Debt to Newly Created Debt Under general principle of property law, earlier rights defeat later rights. Nevertheless, exist - ing secured debt can be subordinated both by agreement and under the law. By way of agree - ment, creditors can allow subordination of their existing secured debts to later debts of other creditors. A note of subordination in favour of another mortgagee can be registered in the land register. Moreover, under the Companies Act, a share - holder of a limited liability company who made a loan to the company at a time when the shareholder knew or should have known that the company was facing financial and/or eco - nomic difficulties may not enforce a claim for the repayment of the loan against the limited liability company in bankruptcy or compulsory settle - ment proceedings. A bankruptcy court will con - sider whether the shareholder, acting as a good manager, should have provided its own capital to the company instead of giving a loan. Under these circumstances, the loan is considered to be part of the company’s bankruptcy estate. Repayments of such loans made during the year prior to a company’s bankruptcy must also be returned to the bankruptcy estate. Similar rules apply to shareholder loans to public limited com - panies, where the shareholder holds more than 25% of the voting rights.
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